Government’s decision on gas hinges on ‘feasibility’ studies

Four years after awarding a tender to BWSC to operate a power station on Heavy Fuel Oil, Enemalta is commissioning two different studies to determine the feasibility of converting the Delimara power station to gas and to determine the best infrastructure required for the importation of gas.

An Enemalta spokesperson confirmed that the corporation will be commissioning a “separate study” to assess “the technical and financial feasibility of installing different options with regards to gas supply infrastructure after the same corporation had issued a tender for a study on the feasibility of converting Delimara power station to natural gas firing in July.

Following the results of these two studies, “the government will be in a position to decide on whether or not to proceed with the conversion of the plant to gas and the installation of the necessary infrastructure to import gas,” the corporation’s spokesperson told MaltaToday.

The government has so far indicated that the conversion to gas depends on the availability of EU funding for a gas pipeline connecting Malta to the European mainland.

But the Enemalta spokesperson confirmed that this study will not be limited to importing gas through a gas pipeline but will review a number of “different supply options”.

Asked why the study is being conducted after the decision to operate the plant on HFO was taken, the Enemalta spokesperson replied that the study will not be limited to the new power station extension build by BWSC but will assess the feasibility of converting the older Delimara plant to gas as well.

The tender document states that the conversion will have to retain the capability of the plant to use liquid fuel to make sure that the country is not deprived of power in case of a gas supply shortage or interruption.

The tender assessing the feasibility of converting the entire Delimara power station to gas is being conducted now, four years after a tender was awarded to BWSC to operate the Delimara extension with Heavy Fuel Oil. A permit enabling Enemalta to fire the plant with HFO was issued by MEPA last December.

Cost of conversion

An estimate on the cost of gas conversion has already been provided in a Cost Benefit Analysis presented to MEPA by Enemalta last year. 

The analysis conducted by economist Gordon Cordina concluded that “the additional capital expenditure involved in converting the existing plant to a capability of running on Gas, estimated at around €35 million”. Combined with the $320 million expenditure on the pipeline infrastructure itself, the cost of investment would reach €273 million.

The report also made it clear that due to the infrastructural adjustments required, the option of fuelling the Delimara Power Station with Gas cannot in practice be implemented prior to 2015.

The study also revealed that Enemalta has already considered three alternative approaches towards possibility of the development of infrastructure for the importation of Gas, concluding that the development of a gas pipeline is the best option.

According to the study the use of Liquefied Natural Gas would require the construction of a shore-based storage and gasification plant, whose investment cost is estimated at circa $140 million, and the purchase of two small-sized custom-built ships at a cost of around $70 million each, for a total cost of circa $280 million.

Another alternative option which was considered was the use of compressed natural gas, which would need shore-based infrastructure at an investment cost of $100 million to $120 million and the acquisition of four ships estimated to cost between $70 million and $75 million each, for a total cost of between $380 million and $420 million.

On the other hand, the development of a pipeline infrastructure linking Malta to Southern Europe, would cost $320 million.

On the bases of preliminary indications provided by Enemalta, the report concludes that the best approach is to develop a pipeline infrastructure.

One of the reasons given by Enemalta for preferring a gas pipeline is the fact that LNG and CNG infrastructures, particularly those related to the shipping elements, would be likely to have a useful life of around 20 years, whereas the gas pipeline would have a useful life of around 30 years.

According to the study, land utilisation is likely to be less intense in the case of the use of the pipeline infrastructure. This is because the shore infrastructure for the CNG and LNG options would use the area already being allocated to the power plant.

The pipeline option was also deemed to have less environmental risks, particularly those related to on-shore storage facilities within a densely populated territory.

Energy policy still in draft form

The latest feasibility study commissioned by Enemalta comes in the absence of an approved energy policy for Malta, which has been pending in a draft form for more than three years. The policy launched as a draft in April 2009 had to be reviewed in a Strategic Environmental Impact Assessment. Originally, the government was committed to finalise its energy policy by the end of 2010, but this deadline was never met.

In July, Resources Minister George Pullicino revealed in parliament that the government was seeking to incorporate an LNG terminal with the planned gas pipeline linking Malta and Sicily.

An LNG terminal is a facility in which gas can be stored in a liquefied state to be used by domestic consumers or subsequently exported to other countries through a gas pipeline.

Pullicino referred to “relatively recent developments” in the gas sector to justify a delay in the publication of a “strategic environmental assessment” on Malta’s national energy policy after being reminded by Labour MP Leo Brincat that this document had to be finalised in June.

According to the minister, the document, which assesses the environmental impact of Malta’s energy choices, was delayed to assess the implications of the proposed LNG terminal. The assessment is now “heading towards a conclusion,” the minister added.

A study commissioned by the Malta Resources Authority mentioned in the draft energy policy issued in 2009 had already established that an LNG terminal with a 60,000-cubic-metre storage facility would be the “most feasible option” for Malta.

But at that time, the project was envisaged as an alternative to a gas pipeline and gas was to be transported by sea vessels rather than complimenting the gas pipeline, as the government is now proposing.

A race against darkness

The latest change of heart on energy policy exposes the government’s failure to seriously consider the gas option at an earlier stage, during the first Gonzi administration between 2004 and 2008.

In fact, the 2006-15 Electricity Generation Plan published by Enemalta Corporation recommended the employment of gas turbines for power extensions for the near future.

In fact, to allow the use of HFO, the government had to issue a legal notice exempting “plants powered by diesel, petrol and gas engines” from more stringent emissions regulations.

What is certain is that by 2008 – when the BWSC contract was awarded – Enemalta was already engaged in a race against time.

It was already known that the old Marsa power station was unable to cope with a staggering 33% increase in its peak electricity demand, which is set to rise from 411 MW in 2008, to 550 MW in 2015. 

The Environment Impact Assessment for the new Delimara power station extension had already predicted that if the new extension and the Malta Sicily interconnector are not completed by 2015, Enemalta will have to resort to load shedding, which effectively means that “not all consumers are provided with an electric supply all the time and that energy will be directed to where it is most needed”.

In fact, this situation is only being avoided by keeping the obsolete and inefficient Marsa power station operating in breach of EU rules.

By 2015, when the Marsa Power Station will be well past its expiry date, Malta will still be 111 megawatts short of its projected 550 MW peak energy demand if the interconnector is not finalised. Studies show that while the Marsa power station is currently generating 230MW, the new Delimara extension will only produce 144MW: leaving the country with a combined power generation of 439MW, and a massive shortfall.

To compound matters further, Malta will have no choice but to stop using HFO by 2020.

A European Union directive which stipulates lower carbon emission levels that Malta must abide to and ratify, binds the government to find a cleaner alternative to Heavy Fuel Oil by 2020.

An impact assessment on the impact of the new directive carried out by Ernst & Young states that the cost of finding an alternative to HFO would cost of up to €220 million, depending on the technology used.

The new directive would reverse the government’s decision in November 2007 to lower emission levels and use HFO, as long as it conformed to the then-existing EU emission limits. This decision was instrumental in the choice of Danish firm BWSC as the suppliers of the new Delimara extension.

“Given that Malta managed to obtain an exemption from these limit values until 2020 (instead of 2016), costs were estimated at between €64 million and €220 million depending upon the technology which will be found to be feasible to implement in order to achieve these emission limits,” E&Y says in the report.